Posted
by
samzenpuson Tuesday April 26, 2011 @10:43AM
from the I'm-gonna-need-a-price-check-on-4 dept.

leek writes "An Amazon.com pricing algorithm which lets sellers set prices based on other sellers' prices led to a positive feedback loop, causing the biology text The Making of A Fly to reach $23M. Biologist Micheal Eisen writes: 'What's fascinating about all this is both the seemingly endless possibilities for both chaos and mischief. It seems impossible that we stumbled onto the only example of this kind of upward pricing spiral. And as soon as it was clear what was going on here, I and the people I talked to about this couldn't help but start thinking about ways to exploit our ability to predict how others would price their books down to the 5th significant digit -- especially when they were clearly not paying careful attention to what their algorithms were doing.' The price of the book was reset but is currently back up to $976.98."

Now that robots are setting prices, must they follow the same rules as people? I would think that, without any explicit agreement, using game theory type decision making alone, a pattern of "price fixing" could certainly emerge by virtue of different algorithms making their own optimizations.

Well, this story goes a small way towards explaining some of the ridiculous prices from some Amazon 3rd party sellers. I saw a textbook recently for hundreds of pounds and wondered wtf they were smoking when they set that price.

It's not fixing if each actor, basing his actions on his own motivations, performs actions that happen to be beneficial to other actors. I should think that the same rules should certainly still apply.

Ignoring the fact that the algorithm here is broken, why would it matter if it's an algorithm or a person who decides how their product should be priced? In both cases, inputs of other prices of similar goods are used to set the price for yours.

I accidentally left an extra "not" in the rule while I was editing it. The logical conflict probably means that the robot is going go insane, take over the world's computer systems, and launch a global nuclear war. My bad.

You goofed. there are four laws: 1. A robot must maximize profits, and may not through inaction allow profits to be less than maximized.
2. A robot must obey any orders given to it by human beings, except where such orders would conflict with the First Law.
3. A robot must protect its own existence as long as such protection does not conflict with the First or Second Law.4. A robot may not injure a human being or, through inaction, allow a human being to come to harm, as long as

This is too much like the artificial and broken economies in MMOs and their auction houses. No real bidding only buyout prices and everyone has their prices as high as they can. After all, $23 million may be too expensive for a newbie player, but all it takes is one twink to buy that book and the seller will feel it's all worth it. In an MMO this works because it costs you nothing to make the product and it costs nothing to keep relisting it over and over. In a real world store though you should feel in

So long as your price fixing loop doesn't cost an investment bank money. They're *entitled* to a profit, and if you harm that you need to be jailed and all the transactions you performed undone. I wish I had the link to that story still lying around.

No, it's ok if an investment bank loses money. The government will just bail them out so their investors don't lose anything and nobody has to cancel their house renovations or trips to tropical places.

Ah, but as the GP notes, it is far better to stick the cost on the supply chain rather than the government--after all, if the government bails the bank out, eventually the investment bank pays (through loans, etc.).

So long as your price fixing loop doesn't cost an investment bank money. They're *entitled* to a profit, and if you harm that you need to be jailed and all the transactions you performed undone. I wish I had the link to that story still lying around.

Many of the laws and regulations pertaining to the conduct of business were conceived prior to and thus without consideration of the advent of certain technologies. This notion of technology, even if it isn't apparent to our legal system, includes not only hardware and software, but business methods. These laws and regulations come about as a protection against certain behaviors we've deemed harmful to some facet of society. This cage meant to trap such behavior however is never perfect and being caged i

That was the old way of doing things. Now that our calculators and typewriters have been replaced by computers, everything is different and we need to rethink every principal that ever hindered business.

(Of course, it helps that the gilded age was so long ago that we now see it as a utopia that has never been tried.)

Corporations aren't really owned by people. Stocks are effectively just a loan to a corporation in exchange for the expectation that the company might eventually buy back those shares or pay dividends. If you truly owned a portion of the corporation as you would in a partnership, you would still own a portion of it after a corporation files for bankruptcy instead of losing everything when they shift their assets into a holding company and dissolve the old company at a loss.

If you own stock in a corporation, the most you are is another creditor to be discarded in bankruptcy and all it takes is a the stroke of a pen to erase any imagined equity you had. You'll never own enough shares to get the board to notice you, and if anyone does get that many shares the board will just change the voting rules to make them irrelevant. A corporation exists to enrich the board and the executive officers. The board exists link to the corporation with others by sharing board members. Like a

these automated algorithms are most distinctly not doing that since they are not sticking to a price at all.

This was a "positive feedback loop", meaning one or both parties were jacking up the price a little on their end, this was necessary for growth. So somewhere else the book is being listed at a similar price. And either there, at amazon, or both, they're set to "look at the other guy's price and add 2%" or something like that. Even if amazon's is set to undercut by say, 1%, if their reference site i

As was postulated in TFA, it may be that one of the parties didn't have to book and was planning to buy it from the other. So A said I'll buy the book from B if an order comes in and sell it for 25% more, and B was looking at prices for the book at other stores and saying I'll sell for 5% below the lowest price. So every N hours A looks at B's price and sets its price 25% above that. Then B looks at A's price, sees it has gone up, and adjusts its price up accordingly. And so on.

It sets a cookie on your computer, so even if you don't buy that book (and why wouldn't you?!), you'll send them a few nickels next week when you buy a DVD... unless you click someone else's referral link in the meantime.

I've seen books on Amazon before that were in the thousands of dollars - books that you can find at any used bookstore for 50 cents, we're not talking ultra-rare stuff here. So this isn't a new bug and they're bound to have had complaints many times before. I think this is the first time they've let the loop get this far though.

Apparently to enough people that Amazon hasn't seen it as a bug. If people are willing to pay thousands for a pop paperback, it would be economic stupidity to fix the error. If the extreme prices had actually cost Amazon money (directly or indirectly), the bug would have been fixed long ago.An alternative explanation is that the bug has been random enough that fixing it would have merely added a few dollars chump-change to the sales - nowhere near enough to pay for the bugfix.

I've seen books on Amazon before that were in the thousands of dollars - books that you can find at any used bookstore for 50 cents, we're not talking ultra-rare stuff here. So this isn't a new bug and they're bound to have had complaints many times before. I think this is the first time they've let the loop get this far though.

I've seen the same thing, but it was always in a context of a dozen different stores all selling the same used book. All but one would have a reasonable price. One, two, maybe five dollars. But one store would be above $1000. I could never figure it out, and the one time I sent email to the store asking why they were so high I didn't get an answer.

Either way it is a pricing error. It's just that in one direction, they will have more unit sales. The question is, do they lose more money by selling 0 units at the incorrectly priced $8.5b or when they sell 1000s of units at an undervalued price?

I added Around the World in 80 Days to my cart one day and forgot about it. Later in the week I went back and saw a notice that the price of an item in my cart had changed. When I looked I found that the movie had gone from a modest ~20USD to over 800USD. I let it sit there and a few days later it changed again, this time to ~18USD. I bought it immediately before it could get worse again.

It's just like what department stores do. They raise their prices dramatically a day or 2 before a sale, that way they can drop them again and say 60% off when it's really only like 10-20% off if that.

Depending on where you are, they even post signs "no units necessarily sold at "full price." So yes, they can set them artificially high without the intent to sell them at that price, then mark them down to falsely advertise them as some percent discount of a "regular" price that was never the regular price. And it's legal because businesses are allowed to lie to you, as long as they follow the lying rules.

I added Around the World in 80 Days to my cart one day and forgot about it. Later in the week, I went back and saw a notice that the price of an item in my cart had changed. When I looked, I found that the movie had gone froma modest ~800 USD to over 32,000USD. I let it sit there and a few days later, it changed again, this time to ~720USD. I bought it immediately before it could get worse again.

If you read the fine article, it seems that this price is based on an automatic price-fixing scheme. If they raise their prices, I can raise mine too etc. etc. until their books are astronomical in cost. In a good market, this would be the other way around where prices automatically go down until it gets to break-even prices as competitors race to get customers. But in a monopoly or duopoly market (as books, music, movies, cable, internet and other media often is) the prices go higher and higher in order to

Except it isn't just that hald, if's also "if my competitior lowers their prices, I need to lower mine".

When one half of the loop is setting there price to be *higher* than the competitor you have the potential for some strange feedback loops - it's a wierd pricing scheme (though it can make sense under a few models).

One vendor has the usual approach approach that economics expects: undercut my competitors price by a small amount.

which would also be a funny result...look at all these books that only cost 1 penny! The charge more competitor isn't really that strange...they're probably not maintaining any stock and need to go buy the book when ever they make a sale...so they have to charge more to provide room for buying the book elsewhere + some profit. Isn't going to get very many savvy shoppers who, say, price compare, but it could rope in some buyers who are in a hurry or aren't paying attention (of course, that's all assuming t

It could also be on the assumption that the competitor only has limited stock of each "used" book, combined with the preference to maximize profit per book rather than turnover. Mark my price a little higher than my competitor and once he has sold out, I will then become the cheapest and also know that my price is still "market rates" and thus I will make slightly more profit than my competitor.

It seems impossible that we stumbled onto the only example of this kind of upward pricing spiral.

While this is an extreme example, this kind of crap has been going on since (aided and abetted by Amazon and Alibris) the amateur commodity booksellers burst onto the web in the late 90's.Scrapers and ratings manipulators like 'bordeebook' are one of the multiple ways that the 'net has made the professional used and rare bookman nearly extinct.

Faulty assumptions, I'd guess. Going from the premises that the market will regulate itself well and that some people will pay a slightly higher price it's a viable strategy to sell your book a bit higher than the market average. Of course this goes down the drain when unchecked robots follow this strategy in large enough numbers to distort the average price. In that case the first premise no longer holds and the model spirals out of control.

But in order for this to happen, each one has to have "price X% higher than seller Y's price, with no maximum" as its algorithm.

Not quite. There was actually a detailed analysis of this spiral. What happened there is that one bot indeed had it set to ~15% higher, but the other was actually set to offer it ~5% lower. The problem is that those two bots were the only sellers offering the book, and therefore they only saw each other - and as the +15% one raised its price, the -5% one also went up.

Now why one bot offered it for +15%? It has a much higher seller rating with lots of positive reviews, so it's likely that it would pop up fir

> Anyone looking on Amazon is going to buy from X because their price is lower.

Not necessarily, you are assuming that all offers are equivalent and are differentiated only by price.

I have often passed-over the cheapest offer on Amazon because of;

1. Condition of the item being sold;2. "Postage" policy ( our wee country is not part of the mainland );3. Seller feedback ratings;4. Poor grammar in an item description ( correlates with seller's attitude );5. Prosaic reasons, such as the higher-priced item bein

It's not the listing price but the sale price that matters. Making decisions on the list price makes no sense. Of course it is a one-sided feedback loop. [insert analogy on cars or housing market here.]

Surely there must be examples of negative feedback loops as well then... where two sellers repeatedly set their prices lower than the other, causing an item to drop to a really low price. Someone go find those items! Group buy!

In EverQuest, an MMORPG that predates WoW, people have been using third-party software to automate many things for years, including selling items in the Bazaar (marketplace.)

Due to common errors in logic, it was fairly easy to spot, and somewhat easy to exploit, these scripts. The scripts would re-price their items based on other items for sale, either to lower the prices to just below the lowest price, or raise them when competing items were sold and theirs were the only items of that kind for sale.